A Major Controversy in the Issuance of Statement of Financial

question 30

Essay

A major controversy in the issuance of Statement of Financial Accounting Standards No.95¸ "Statement of Cash Flows," centered around the possibility of the Board's requiring the direct method of reporting operating cash flows.Bankers who responded to the Exposure Draft preceding the issuance of the pronouncement on cash flows expressed a preference for the direct method.Practicing CPAs have been shown in studies to favor the indirect method.The Board has allowed both the indirect and direct methods to be used,although the Board expressed a preference for the direct method.
Evaluate the strengths and weaknesses of the direct and indirect methods and why you believe the Board decided to allow preparers of financial statements a choice between the two methods.

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Definitions:

Type II Error

The failure to reject a false null hypothesis or a false negative in hypothesis testing.

Significance Level

The significance level, denoted by alpha, is the threshold chosen by researchers below which a p-value must fall for results to be considered statistically significant.

Null Hypothesis

A statistical hypothesis that asserts there is no effect or no difference, and any observed deviation from this hypothesis is due to random variation.

Type II Error

A statistical error occurring when the null hypothesis is not rejected when it actually is false.